BMO settles Alberta fraud lawsuits involving brokers

Mortgage fraud allegations amounting to $69.5 million in Alberta have finally been settled by Bank of Montreal out of court – lawsuits involving a group of mortgage brokers, lawyers and BMO employees.

Jeremy Nicholls, a fraud specialist who works out of Alberta, is saddened that once again law enforcement officials won’t be actively prosecuting what appear to be serious cases of mortgage fraud.

“I was following this (story) for a while now,” says Nicholls, whose current job as a fraud and investigation manager at a major credit union allows him a unique perspective on illegal activities within the lending and mortgage communities. “A lot of this has been allowed to happen through sloppiness. Both brokers and lenders need to focus on procedure, on the actual job – and not just the paycheque.”

The mortgage fraud investigation was spurred by a BMO audit in 2006, when the bank hired forensic accountants to look into an alleged scheme that fraudsters were buying low-end homes in nice neighbourhoods and convincing the bank that the property was worth much more than the purchase price. The homes would then be sold to immigrants, who were given documents by the alleged fraudsters falsifying their incomes, allowing them to successfully apply for these homes.

The new homeowners failed to meet their mortgage payment commitments, resulting in a string of foreclosures that left BMO holding the bag. The allegations of fraud were brought about by BMO in 2010, followed by an RCMP investigation.

The money and manpower needed for a fraud investigation usually prevents it from ever seeing the light of day in a courtroom, Nicholls points out.

“The police face certain challenges in a complex investigation like fraud, in any white collar crime,” he says. “With mortgage fraud, you are looking at small penalties if the perpetrators are even convicted.”

According to CBC News, the RCMP stopped its criminal investigation into the matter several months ago. The RCMP policy is that it will not discuss an investigation unless charges are laid. Sgt. Patricia Neely said, “If it doesn't meet our mandate, then we would privately notify the complainant.”

As part of the settlement, the Alberta Lawyers Insurance Association will pay BMO $9.2 million on behalf of the lawyers alleged to have been involved in the fraud.

None of the allegations have been proven in court, and both BMO and the lawyers’ group have declined to comment.

For Nicholls, aside from BMO, the real victims are the immigrants who were desperate enough to participate in the fraud.

“The straw buyer routine, I’ve seen it time and again,” he told MortgageBrokerNews.ca. “Now they are the victims too. They are easy pickings, the newcomers to the country.”

Nicholls points to the decimated credit ratings and sullied reputations that result from any connection with these types of frauds as the primary fallout for those buyers.

“I know; when I first came to Canada,” he says, “ I could get a mortgage, but I couldn’t get a credit card because I had no credit history here!”

1. BMO claimed to have lost about 30 million but sought to recover 69 million (looking to recover profits on mortgages that were fully repaid and the properties never went into foreclosure).

2. BMO pretty much forced law enforcement to launch an investigation, thereby taking much needed resources from mom & pop operations that had suffered fraud and needed police action more urgently. Unlike the article's suggestion, the RCMP did not want to do BMO's bidding -- BMO was looking for more leverage over the defendants. In fact they had a media campaign fully formulated from day one.

3. When the market crashed in 2008 many many homes went into foreclosure and all banks suffered as a result. BMO's sued because of the losses that every other bank suffered as well. I dont believe for a second that they had been investigation since 2006. Who waits 4 years to take any legal action?

4. The straw buyers, most of whom had no idea that what they were doing were doubly victimized -- BMO told them that they were each fully responsible for the $30 million in losses. 5. Money and manpower required for a bank to do a fraud investigation and to sue an INDIVIDUAL fraudster is not excessive. Its only excessive in this case because BMO decided to sue almost 400 people, including their own employees.